A Peek Behind The Mirage Of The Dollar's "Flight To Safety"

Whether by intent or good fortune, gold's plunge in the last few days has reduced its appeal as a store of wealth and spurred the more central-planner-biased view that the US Dollar is the 'safest' place to deposit your hard-earned after-tax wealth. However, as Cypriots learned the hard way, trust in the entire system depends on the counterparty (in the case of bank deposits, you are implicitly lending your money for no return to a highly-leveraged entity) covered by an FIDC guarantee. As the following infographic makes very clear, that level of trust is remarkable when the reality is that gold is an asset without any counterparty risk and without any implied risk.

Ezekiel 7:19 "'They will throw their silver into the streets, and their gold will be treated as a thing unclean. Their silver and gold will not be able to deliver them in the day of the LORD's wrath. It will not satisfy their hunger or fill their stomachs, for it has caused them to stumble into sin.

Indeed, this is the mechanism backing "too big to fail", "too big to jail", "too big to do anything". $9.269 trillion dollars are effectively "unsecured deposits". That is 61.4% of the nominal US GDP, or 13.2% of the entire global GDP price in nominal USD.

I just wish the catalyst would hurry up and... catalyze(?). The picture says the big banks and the White House get crushed in a derivatives implosion, and the only collateral damage would be a semi, a house, some empty football fields, and the Statue of Liberty. I can live with that.

there is hundreds of trillions in notional derivates right? They will all start imploding is the theory. I'd love someone on here to tell me the catalyst because I truly don't understand what the spark will be.

Fonz, how can anyone possibly know what that spark will be? Could be anything once a certain saturation point has been reached.

Imagine Hercules rolling a gigantic boulder over to the edge of a cliff. Even for Herc it takes a herculean effort. Perched on the very edge the boulder it perches. A little birdie shits on the outer edge of the boulder....

Will it be a little birdie that does it? Maybe. We know for certain that we've been pushing the dollar all over the world with gargantuan efforts involving too many efforts and means to mention. Looks to me like it is getting awefully close to the cliff..

I just keep coming back to 85 billion a month. Man that plugs a lot of holes. Probably for a very long time. There was no 85 bil a month in 2008. If they said they were increasing it to 150 bil/mo I bet no one would complain.

I still have no idea about the derivative shit, but for the broader economy and its response to the Hot Bernanke Injection, I see it like it's a campfire.

Say you and your cousin want to cook a pot of beans, so you make your fire with a pile of wood. It burns and works great for a while, but it starts getting too low. Then, instead of getting off your asses and adding more wood, your idiot cousin decides it's a swell idea to add squirts of lighter fluid. You packed plenty of extra lighter fluid, and this way no one has to do the hard work of collecting wood, and it's not like he's pouring the whole thing on... So what the hell? It might be interesting to see what happens.

It makes some big flames, but they don't last long, so he starts spraying more on. Again, big flames that don't last long, and the wood seems to be disappearing quicker with each shot of lighter fluid. At this point, your idiot cousin grabs the gas can from the back of his truck and lobs it into the fire.

There is a limit. According to The Bernank himself, the Fed can only buy Treasuries and Agency debt. Once they buy the whole issue of both, QE can no longer be increased. In fact, they may have already reached the point of diminishing returns. Every bond they buy reduces the interest income to the private sector and is actually deflationary. The Fed is legally constrained. The only thing left for them to buy is gold.

The Fed could buy gold. It is legal since gold is a monetary metal. Unlike bond buying, it would pump new money into the real private economy. However, it could come at a big price. If the Fed did QE by buying gold, it could destroy the value of the dollar. They wouldn't do this unless they got really desperate.

Speaking as an outsider, I think the problem is that the system has become complicated to the point of complete unpredictability. No one knows what the spark could be, not even the main participants, because their little wealth-extraction machine, as it grew wobbly over the years, was "repaired" with the financial equivalent of bubblegum and twine. Each and every quick fix seems in retrospect to have been intended solely to push the inevitable collapse out into the future rather than actually stop the wobbling.

Short version: We might be able to perform a post-mortem, but I don't think we'll be able to anticipate anything.

imho, americans are too armed to the teeth. but theyre working on it. the sandyhook memorialbombing and the ricin sent to the gop senator backing gun control are a nice touch. i think that will be the catalyst. a major event of the phony, flagish nature, culminating in an outright ban.

I'm all for getting out of the Oligarchs system, but remember they have tons of gold hidden away that they have stolen over the years. There may be much more gold than is publically know, and therefore may not be the best store of wealth. I contend the better way to get out of the system is Silver, Food, Medicine, Land, Shelter, Guns, and Ammo. All of those have no counter party risk as well.

FYI, just checked gainsville for silver eagles-not shipping til May 10th. Also I made my last purchase for AU thru tulving back on Feb 23 and it took 29days for my package to arrive. The whole month I waited I was tripping the system would blow up and they would never get here but they did March 22nd. I can imagine what wait times will be like now were below 1400 & 24.

The amigos in Venezuela, Argentina and many other countries thought their currency was safe and sound until they woke up one Monday morning and discovered their pesos to be worth 40% less as a result of devaluation.

As an observer of humanity, I, like Jesse's of Cafe Amercain, see, in his words, a Sea Change looming, a major shift in human circumstances and as we have linked the monetary and financial industries, into our human values at system level; nay, we have made the markets our very being, the impact on our lives will be traumatic, and, as now, to many, hard fate.

What has not been discussed in commentary and more importantly with ourselves is the essence of human being where through validation by our honest scientific knowledge, that which can only be, and hold the center, is phenomenal intergity.

Our problem, simply put, is the LACK of truth in managing our affairs, and dealing with reality, and ourselves.

The solution to our situation, again, simply put, is TRUTH.

We must STOP lying to ourselves, lying to others, and lying about the facts of our monetary, financial and banking affairs and fundamentals. We must emerge from our "Denial". Today, everything, everything is a government sponsered LIE.

The simple solution to our impending disaster, and to our future, is to switch from a priori LIES, to the TRUTH.

^^^ Cheers to a fantastic commentary. This adequately summarizes the problem not only with our fiscal policy as a nation, but also explains why our society is morally bankrupt and filled with cowardice.

For all you armchair listeners, this is the best explanation of The Problem so far. Albeit, it's philosophical -- we must start at the origins, and that's where only philosophy can take us.

Ok I'm all for that, but how? The LIARS control just about everything, including the financial system, media, and the government. 95% of people or so follow the LIARS. So how can a few of us who know what the heck is going on make any meaningful positive change?

We need to replicate and divide like cells. We need to constantly educate ourselves and evolve so that the liar's voices don't drown out the voices of the truth. We must become successful and bold. We must infiltrate the systems that exist as media megaphones and we must build our own. We must teach our children and our wives and our friends and everyone we come in contact with -- that there are some seriously fucked up people distorting how we percieve reality. We have to train our minds to combat sollopsism and delusion. We have to stop praying and wishing for an apocalyse and begin our own intellectual revolution and we need to do it now. We have to choke out whinny, victimized post hoc ergo propter hoc vernacular and grow up and fight. Let it start here, let it start there, let it start wherever the voices of truth and not buffoonery be spoken and heard.

Obviously the really smart ones hold gold and lots of it and they want more, they obviously know that the dollar and all fiat are doomed. They want more gold and are shaking the tree. Hold on!!

The same people shaking that tree will make the gold they are holding much more valuable than it is now, whenever they feel like it. We can't know when that is. But we can be certain that 'they' are at least as shrewd as we are and a whole lot more ruthless. They want moar and they want it to have max value when the fiat sham collapses, which they and we know it will.

I believe the truth is that about 3 years ago TPTB accepted that there was no changing our endgame. They are just trying to buy time to prepare for rebuilding. It is impressive how they are buying time to postpone paying an impossible debt reality, but reality for most of us will be different kinds of bad when it arrives.

if japan is a bug looking for a windshield, does that make the US an addict looking for a lab? (experimental of course).

(ponders again what would have happened if the fed would have withdrawn funds from the banks - QContraction - to eradicate excess government, corporate and consumer debt instead of creating more if it...entropy is a wonderfuel thing - bring on the opposing magnets for perpetual, anti-gravity motion purposes such as free energy!)

We would have been steamrolled by the other 15 fraudulent first world countries that have been doing the same shit since 2001.

I have a friend who just got back from Germany. He bought his house there in 2003. It's a piece of shit and it got appraised for the equivelant of $450,00 USD. He walked into the bank and refinanced his house with not a single piece of verifying paperwork. It's easy to think our banksters are the only douchebags doing it, that we created the scam. Oh no. We didn't. The virus is global, man.

yes...hear stories about getting mortgages on houses..knocking them down and rebuilding on the site without the bank having a clue as to what the risks were in the interim six months ..new houses on prime land worth double or triple what the old houses were worth (in some places) ..

still..not hearing anything more about how many foreclosed and empty houses there are in the US, UK, Germany, Spain or Japan..you control supply and pay no penalty (sort of a Bunker Hunt of the housing market) what is going to catch you? the states have rolled over with MERS registration fee avoidance..dont think they have the ability...

but you are right..people will take a freebie when its offered..so would i..i have always paid debts tho..its hard to understand how people (my borther included) default on loans, pay back some 10 cents in the dollar package and don't think its the same as theft.

Excluding depositor liabilities from exposure to asset deterioration would be a simple administrative step. Annihilating deposits -- which is what the article implies -- is pointless when doing so would have almost no effect on the assets or their impairment.

However, the FDIC insurance only covers a "small portion" of the total liability (deposits 250K or less per person..). So what is the "true" max FDIC claim (if everything goes to hell in a hand basket) and how much of disparity is there between the two (FDIC Funds-max claims). Don't forget if the insurance money runs out the US government will stand behind the shortfalls <sarc, coughing etc>.

But I do get the point, if REALLY "it shits the bed" don't count on ever seeing a penny from the FDIC Deposit Insurance.

It points out the limitations of ANY insurance. All will only work up until the point of interference by "God." I figure that a major meltdown will be proclaimed as coming from said point (but that would remove he ability to play the "terrorist card").

But... "In God We Trust," so it's all going to be OK, right? The Big Guy will step in and bail things out!

Now everyone knows my opinion of bitcoin...but it is/was a threat to their control that had to be dealt with. Just like G/S or nmewnbucks ;-)

The purpose is, to give the illusion of safety, of power, of order, of law, of your own empowerment, of retirement, of even, sun drenched vistas of chilled mountain top waterfalls & warm white sand beaches awaiting you after your life long labors...when we know thats not the case.

Corzine has not been charged. The CME is a sham. They can step into a Cypriots bank account and confiscate whatever their heart desires for "the common good" for themselves?

Never underestimate the power of denial. The central planners have your best interest in mind and there is no need to take personal responsibility on concerns over the banking system, the solvency of the government, dendency on entitlements or ponzi scheme supplemental government retirement plans, the proliferiation of 0% interest rate in consjunction with about a 0% savings rate and the malinvestments they create.

Mark my words, the consequences of creating false prosperity will not only be born by your children, but by your parents or even grandparents if they are still in existence. With any luck, this will be such a shock that central banking and huge government will be done away with for some time, leading to tremendous prosperity.

FDIC is a marketing arm for the sheep to accept that it will be them (sheep) who get sheared and that the shareholders of the banks are left alone. It's all an indirection of taxpayer money made to look like the banks are putting something up. Govt and Corporations working hand in hand! Ain't fascism slick?

In in their defense, not even us "enlightened ones" have any solution to combat all this shit (we can talk all the talk but what is to come of it?). Time is precious, and the sad part about ALL of this is that TIME is what is being stolen from us (get out of the System- take back your time from TPTB- don't engage them to change Their system, ha ha!).

There's a basic reason for this: we are in a period of transition, and nobody knows what lies on the other side.

This is particularly problematic for working adults, as it must be. Children don't know the difference, and retirees are sort of winding down. The disabled and dependents are content with their handouts.

It's those of still in the game (and that's still most people) that are forced to try to decipher things even as they remain uncertain.

As such, there's nothing we can do but basic preparation and exiting the unstable systems as best we can, so that we have something, anything, on the other side.

There is no way that Congress would default on FDIC insurance. If they had to issue trillion dollar coins to make good on it, they would. Now, any amounts above the insured limits would probably be lost, but you all expect that anyway, right?

This is the big difference from the EU. Does anyone seriously believe that the European Commission would order the issuance of Trillion Euro Coins, or that Chancellor Merkel would permit it?

One clever Dick told me that as long as the marginal exposure in Derivatives is kept balanced, things should be OK. No mention was made of dynamic and nonlinear systems, operating on Complexity Theory. Wasn't taught when he went to school. :-)

But, since Derivatives are purely "Side Bets" that are holding all other assets as "Hostages", I say "We don't negotiate with Hostage Takers. Shoot them at first chance, take no prisoners". Put another way -- more PC: "Declare a Debt Jubilee". Under the IEAA.

the margining system for futures and the collaterlization of losses for swaps is the achilles heel..

losses on swaps written and outstanding that are secured on collateral are around 3-5% of the gross exposure of all derivatives..considering that gross exposure is c. 70 trillion dollars (or did last i checked a year or so ago), that 3-5% represents a collateralized exposure of the odd 2-3 trillion...that is bank counterparty risk (mostly big 5, say 90%)

how much unpledged collateral is there out there that has not rehypothecated to the central banks..what kind of collateral..how good are the haircuts given that the Fed has made all credit money good? perhaps it is cash or government bonds..zero haircut on treasuries is ok? well..fiat lasts for as long as it lasts..maybe a better way would be to treat all swaps outstanding as bank borrowings..see how Basel III and Volcker rules tap those asses..

(note to self, check BIS data and figure out what the margin money is on global futures eschanges PLUS all the internet trading platforms that have grown explosively over the last ten years in CFD's etc).

Does a terrorist explode a bomb to kill people or to create a fear and chaos that creates a particular reaction? I ask this because I can’t help but feel that everything we are experiencing is for the effect, to motivate us towards a particular position or action. Maybe things are all happening without any hidden hand in action, but I can’t help but wonder. So many predict the same outcome of all of this, but in our own way are all active participants in what is playing out.

a comparison with road deaths in the US over the last ten years suggests that it is the shock/impact of massive fatalities at one point in time..rather than the much larger scale (by tens of thousands more, killed on roads since 9/11, compared to the 2400 who lost their lives on that date).

comparing the psychology of this feature (impact/shock) to the GFC..well..one is lehmans (9/11) the other is the permanent feature of fiat (ongoing and appalling road deaths).

we all drive on the roads..and take flights where stats show that 1 in 100 million will have a terrorist on them..

i am a "hater" of things like a peanut ban on flights, because one person in 1 million is allergic to peanuts..but i support the removal of clothes and luggage to a separate aircraft (donning of airline wear, as you would in the gym)..

my personal beliefs tell me that the government should simply cease borrowing now, pay down debt until the discretionary budget component reaches at least 50% of taxes..(from 7% today)..my beliefs also tell me that bank finance should be immediately switched to equity and houses marked to market at a clearing price..mortgages should be equity loans with homeowners paying dividends to lenders..that are a proporion of salaries/earnings..

if these measures were put in place..the shock/impact would be staggering initially...the fed would have to be reformed or abandoned..so..one mans meat is anothe rmans poison...

This statement says it all: Cypriots learned the hard way, trust in the entire system depends on the counterparty (in the case of bank deposits, you are implicitly lending your money for no return to a highly-leveraged entity) covered by an FIDC guarantee. As the following infographic makes very clear, that level of trust is remarkable when the reality is that gold is an asset without any counterparty risk and without any implied risk.

People who keep saying or thinking that "the bull market in gold is over", simply do not understand gold as an asset that preserves value (wealth). I buy gold simply for the security of its constant exchange value. Bull bear, who gives a shit. It is true that it does not pay one to wait. Nor does it offer a dividend. It just stays forever the same, ho hum. No third party risk to contend with, no debasement to worry about. Gold could go to $5,000, or to $50 and i am no better or worse off either way. I am indifferent. The only question for me, is what world would I want or prefer to live in - gold at $5,000, or gold at $50. Both worlds would suck IMO, but, if I had to choose, I would pick $50, for the hope that people who could not commit to gold, but did do the right thing and save - would have the opportunity of enjoying the benefits of saving - as opposed to being brutally punished from wholesale currency debasement and being left with nothing. How fucking evil Bernanke is.

I like the message in general and I get the point with the FDIC/deposit insurance thing, but the last picture with the 300t in outstanding financial derivatives is both popular and misleading. the bulk of the 300t in derivatives is based on vanilla currency swaps and forwards: not smoke-and-mirror structured asset-backed stuff. For there to be any order of default (or reduction to zero) on any of these contracts, a major currency would have to literally cease to exist.

If someone defaults on a forward, the loss is still barely percentage points of the net exposure (eg: a 100mio forward sell JPY buy USD @ 100, even if the spot goes nuts and moves to 120 and the counterparty refuses to pay, the contingent net "loss" is still only 16.6mio... a fraction of the outstanding.

Can we accumulate losses on 300t of outstanding derivatives? Yes. Is the actual economic impact of the event going to be as terrifying as "300t" makes out? No. Unless of course we get a 6-sigma like gold and the yen goes to 1000, but by then I suppose we'd have much bigger problems to worry about.

Yeah: 2% of 210t. So 4.2t, spread across all of the counterparties in the market, of which there are literally tens of thousands. Anyone who can't stand up to a 2% shift on an IRS should go bust in the first place simply based on the principal of crap risk management.

The point is, it's not going to blow up the entire system. It's just a scary number trotted out to incite fear of derivative contracts.

... Those whole mega-sums are not actually at risk, but the cash calculated to be at risk from derivatives from all sources is at least $12 trillion ...

The PROBLEM is the degree of leverage, so that a series of events causing $10 trillion of derivatives to cascade triggers dominoes to fall.

Derivatives are astronomically leveraged frauds, which is why even Buffet called them financial weapons of mass destruction.

I believe that the average USA bank is leveraged about 25 to 1 headed towards 30 to 1, while 31 to 1 was the leverage of Lehman Bros. Investment banks use 40 or even as much as 60 to 1 leverage to fund their Derivative Death Star.

In a chapter from The Great Crash, 1929 titled “In Goldman Sachs We Trust,” John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market’s historic crash; in today’s dollars, the losses the bank suffered totaled $475 billion. “It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity,” Galbraith observed, “If there must be madness, something may be said for having it on a heroic scale.”

I believe that Goldman Sachs has achieved the absolutely astonishing level of leverage of over 400 to 1, headed towards 500 to 1.

While JP Morgan ("the government's bank") is the biggest in overall absolute magnitude, the prize for the greatest relative degree of runaway insanity (which is matched by the greatest degree of revolving doors between it and the government) is Goldman Sachs.

One might say that, while JP Morgan acts as the government's bank clerk, Goldman Sachs acts as the government's bank manager. They both have the power of the government of the USA behind them, as well as in front on them, whenever they do whatever they do.

Of course, this PROBLEM has been globalized. I believe that there is only one bank of the top twenty-five banks in the world today that is below 20 times leverage. Every other bank is above ... 20 times leverage means that if they only lose 5% on their loan book, they have lost their capital. ... Virtually every bank in the world has a bad debt position which is worse than 5% of their assets. ... If you look at an entity such as Deutsche Bank, their leverage is 62 times. It means that if they have a bad debt position of 1.5%, the bank is bust. Deutsche Bank is bigger than German GDP. ... Credit Agricole, the largest French bank, has 63 times leverage. ... The two big Swiss banks combined total 7 times Swiss GDP. The banks have a leverage which is unsustainable, and in many cases are bigger than the countries themselves.

Since are in the middle of a stampede of social insanity, it appears tragically useless to bother to research these kinds of social facts. As long as the people running big banks like JP Morgan and Goldman Sachs can continue to make bigger bets, with more money made out of nothing, at higher levels of leverage, they will continue to make billions of dollars of bonuses, and thus, have way more power to influence the political processes than anyone else could remotely come close to being able to do.

Evidence and logical arguments have no apparent effect upon the social insanity of runaway triumphant financial frauds, since that is still making those doing them fantastically more wealthy, and thus more politically powerful.

After collapses into chaos, probably causing more genocidal wars, along with democidal martial law, the causes of that will no longer matter much in those circumstances then.

Pointing out those problems today has about as much effect as attempting to tell CountryWide Mortgage about their problems before 2008. Of course, they deliberately ignored all the evidence and logical arguments, and so did almost everyone else, as long as they could, as they kept on making more money from blowing a bigger financial bubble of fraud. Of course, those doing that got to keep almost all the money that they made while they were doing that, and then, could use some of that to continue to corrupt the political processes.

These DEMON-OCRACY infographics are great to help intellectually understand the magnitudes to which those financial numbers are NUTS!

These utterly insane and irrational financial numbers "should" be something that sane people would do something about, however, that is NOT happening, while, paradoxically, those who do bother to research these things, and comment upon how crazy they are, appear to be totally wasting their time, since they are changing nothing significant that is going to happen anyway.

Everyone is trapped inside of those runaway systems of triumphant financial fraud, while those who are set up to make the most personal profit from doing that therefore have the most personal power to influence those things.

We are in the equivalent of a financial "Cold War." All of our weapons back up the banksters' frauds. Since it is globalized, privatized electronic fiat money, backed by atomic bombs, nobody sane wants to start that house of cards collapsing, because when it does, then billions of people are probably going to die in horribly miserable ways. It my opinion, it is the astronomically amplified SIZE of the social insanity that we are inside that is the only thing which keeps it going.

That enabled the banksters to create hundreds of trillions of units of "money" to gamble with. Since everyone was forced to accept that situation by their governments (which were covertly taken over by the banksters' control of everything that their wealth from runaway triumphant fraud could buy), there is no way for the financial system to collapse without causing almost all other social organizations that presently exist to collapse into chaos.

Everyone with anything to lose has a stake in keeping the house of cards standing, and not starting the dominoes falling. However, that merely means that the house of cards, or layout of dominoes, is able to get even BIGGER, and so, even more unstable.

Financial weapons of mass destruction are as unprecedented as the physical weapons of mass destruction. Electronic frauds, backed by atomic bombs, always being amplified to even more astronomical sizes, IS the current situation, even thoughNOBODY KNOWS WHERE THAT WILL GO ...